GBP/EUR exchange rate midweek update: pound falls to 3-month low against euro
The pound slipped into the 1.15 range, touching a three-month low before hawkish central bank comments helped it to rally.
(22/04/2024 to 24/04/2024)
Monday
The pound euro (GBP/EUR) exchange rate dropped to a three-month low below 1.16. A lull in significant data releases left the UK currency left investors to recall dovish comments from the Bank of England (BoE) on Friday.
Deputy Governor Dave Ramsden stoked interest rate cut speculation by suggesting that UK inflation is on course to reach the central bank’s 2% target in April: “Given we know the level of the Ofgem price cap for April and also taking account of the freezing of fuel duties in the March Budget, then other things equal we can be confident headline CPI inflation will fall sharply in April, to close to the 2% target.”
His dovish rhetoric prompted investors to scale back their rate cut bets from August to June, undermining the pound.
A risk-on mood in markets left the safe-haven euro trading on the back foot.
Tuesday
The pound remained close to a three-month low against the euro having ticked higher following hawkish remarks from BoE Chief Economist Huw Pill, who said: “In my view, against the background of a welcome decline in headline inflation, the outlook for UK monetary policy in the coming quarters has not changed substantially since the beginning of March.”
Investors interpreted this to mean that the BoE may still be some way off unwinding its monetary policy.
His comments followed a closely watched survey of business activity that showed robustness in the services sector.
The S&P Global UK Composite Purchasing Managers' Index for the services and manufacturing sectors increased beyond forecasts to 54.0 in April – an 11-month high – from March's 52.8. The jump was underpinned by a significant rise in the services index to 54.9 from 53.1, as the PMI for the smaller manufacturing sector unexpectedly fell to 48.7 from 50.3, taking it below the 50 threshold that separates expansion from contraction.
The euro was subdued after the Eurozone’s PMI survey for April showed overall business activity in the bloc expanded at its fastest pace in almost a year as an encouraging recovery in its dominant service sector offset a deeper downturn in manufacturing.
The preliminary services PMI printed above forecast at 52.9, rising from 51.5 and exceeding expectations of a more modest reading of 51.8. However, the manufacturing PMI declined from 46.1 to 45.6, below forecasts of 46.6.
Wednesday
A lack of macroeconomic data from the UK economy meant the pound climbed back above 1.16 following surprisingly hawkish comments by BoE Chief Economist Huw Pill the previous day. His divergence from his colleagues’ recent dovish rhetoric dampened hopes of a summer interest rate cut.
Following his speech, investors pushed back expectations that the central bank would start unwinding interest rates in September. Earlier in the day, they were betting on a first cut in August.
Appeal for the safe-haven euro waned amid an increasing appetite for risk in markets. Consequently, Germany’s latest Ifo business climate index couldn’t inspire the single currency, despite sentiment towards the Eurozone’s largest economy reaching an eleven-month high.
Looking ahead
Consumer confidence surveys from Germany and the UK will be in focus on Thursday, with both forecast to reflect sticky inflation by indicating a dip in morale.
Several speeches later in the week from Eurozone policymakers could influence euro sentiment. Investors will be listening for any dovish signals as mounting rate cut speculation continues to weigh on the single currency.